I'm a private money manager and freelance writer focused on Peak Oil and Climate Change as investment themes. I manage portfolios for individual clients and am co-manager of the JPS Green Economy Fund, a hedge fund open to accredited investors looking for exposure to Peak Oil and Climate related themes. I no longer write for Forbes, but I'm Editor at AltEnergyStocks.com, where I've been analyzing clean energy stocks since 2007. I live in Upstate New York, and am a runner and a woodworker. Since I write for several sites, you can follow me on Twitter, where I tweet new articles and links to other things that catch my eye on the web. DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results. This blog contains the current opinions of the author and such opinions are subject to change without notice. Blog entries are distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

Hydrogen Stocks More Than Double In 2013: Why The Pros Missed The Ride

If you hadn’t noticed that hydrogen stocks are up an average of 131% so far this year, you’re not alone.

Both hydrogen fuel cell stocks and hydrogen fuel systems stocks are up strongly. Plug Power (NASD:PLUG), a maker of hydrogen fuel cell systems for off-road vehicles is up 122% year to date. Ballard Power Systems, Inc. (NASD:BLDP), which makes hydrogen fuel systems for a wide variety of applications is up 133% so far this year, and 149% from its mid-December 2012 low. Hydrogenics Corporation (NASD:HYGS) makes hydrogen fuel cells, electrolysis, and storage solutions for stationary and portable power, and is up 122% year to date and 127% from its low a year ago.

Quantum Fuel Systems Technologies Worldwide Inc. (NASD:QTWW) has risen 146% this year and is up 261% from its low in April. Quantum provides fuel systems and drivetrain components for natural gas and electric vehicles as well as hydrogen fuel cell vehicles, so its rise probably has more to do with recent natural gas contract wins, but, with or without Quantum, the sector’s rise has been impressive.

Fuel Cell Vehicle Announcements

If I had to explain the rise, my best guess would be the recent string of announcements of fuel cell vehicles from major auto manufacturers.

But a lack of fueling stations means that fuel cell vehicles are unlikely to even rival electric vehicles when it comes to sales for many years to come. If hydrogen stocks are rising on hopes for futures sales of fuel cell vehicles, that rise will become a decent if those sales fail to emerge.

Why The Pros Don’t Like Hydrogen

Small investors have been the main buyers. While institutional holders such as mutual funds have been buying, they have only been doing so in a small way. During the third quarter, net institutional ownership increased from 15% to 16% of Ballard, from 3.4% to 3.8% of Plug Power, 5.7% to 6.3% of Hydrogenics and 2.3% to 2.8% of Quantum, according to Nasdaq data. The changes amount to less than a single day’s trading in all four stocks. Meanwhile, insiders have stayed entirely on the sidelines.

I recently asked my panel of green money managers if they’d been paying attention to hydrogen stocks, and those who responded gave a resounding “no.” Their dislike of hydrogen stems from skepticism around the economics of the technology.

As Garvin Jabusch, co-manager of the Shelton Green Alpha Fund (NEXTX) told me, “I’ve yet to be convinced… that there is a way to eke a profitable business model out of the space” because of the energy-intensive processes required to create hydrogen. He thinks the recent roll out of fuel cell vehicles by Toyota, Honda, and Hyundai have a lot more to do with meeting California’s requirements for a minimum number of zero emission models than it does with expectations of selling a large number of cars.

Jan Schalkwijk, a portfolio manager with a focus on Green Economy investment strategies in Portland Oregon notes that recent history has taught us “ it does not pay to be too early” in green investing. Although hydrogen technology is not new, but he thinks “its widespread adoption is not in the cards” any time soon.

Rafael Coven, who manages the index (^CTIUS) which underlies the Powershares Cleantech ETF (NYSE:PZD), has always avoided hydrogen stocks and is “a LOT richer for it (i.e. not poor.)” He says “Fuel cells require very, very deep pockets and a long path to profitability. Big corporations have burned/burn through hundreds of millions of dollars in R&D and still have no profits on the horizon in this field.”

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Video below of what is happening in California at municipal wastewater treatment plants using fuel cell technology to produce 3 value streams of electricity, hydrogen and heat all from a human waste! This is pretty impressive in my opinion for hydro-refueling infrastructure.

“New fuel cell sewage gas station in Orange County, CA may be world’s first”

Way to totally exclude Fuel Cell Energy (FCEL) which builds fuel cell based energy plants and already has several operational. They have the best chance of all the fuel cell based stocks and you mention PLUG as having the best chance? pleeeease, do some homework

MCFC’s … Molten Carbonate Fuel Cell technology… SOFC’s are coming! They just bought Versa Power which they were in collaboration with on SOFC’s along with the DOE… Also their MCFC’s run on Nat Gas, Boil Off Gas, Digester Gas along with other gases…

Okay, I’ve updated the article to discuss FCEL. I agree with you that FCEL is much more likely to be viable at scale than the hydrogen companies discussed here, but that’s not because of its work on hydrogen… it’s because its carbonate FCs and SOFCs are good for distributed combined heat and power generation in densely populated areas.

Yes, SOFCs/carbonate FCs first reform carbon based fuels (mostly methane) to produce hydrogen before using that to create electricity, and they could likely run directly on hydrogen if needed but so what? The whole point of this article is that the hydrogen stocks are likely to go “boom.” The fact that SOFCs are flexible when it comes to fuel sources is a strength, not a weakness.

The fact that they can produce hydrogen is somewhat interesting… it gives me more hope that we may eventually have a hydrogen fueling infrastructure worth the name… but even if the hydrogen highway is based on SOFCs, that will take too long to keep the hydrogen stocks from crashing back down at least one more time, IMO.

Thank you and the so what is a hydrogen infrastructure must be built out. FCEL already has a tri-generation fueling station in Orange County CA producing electricity, heat and hydrogen fueling. Thank you again for the follow up

To be a bit more precise, they use a chemical process to convert the hydrogen in hydrogen-rich fuels into electricity, electricity and heat (co-generation), and in some cases, electricity, heat, and fuel-grade hydrogen .

While carbon-based fuels are the most commonly used fuels, FuelCell Energy has delivered molten carbonate fuel cells capable of tri-generation that use renewable biogas as the fuel stock and the DOE is currently evaluating SOFCs that run on next-generation biofuels (bio-kerosene).

I would also argue that tri-generation plants are more than just somewhat interesting. Many organizations involved in planning the rollout of the hydrogen highway in California believe this capability is key to making the hydrogen highway economically viable. They are promoting the idea of fuel cell-equipped “energy stations” that will produce hydrogen for cars onsite, sell electricity to power companies, and provide heat and hot water for nearby buildings — i.e., three revenue streams instead of one revenue stream from hydrogen.

Tom, thanks for writing about hydrogen. Considering it’s the most abundant known element in the universe, very few people talk about it. There are 2 points you made that I disagree with. One, that it is expensive to produce. Your primary feedstocks are electricity and water. Think about all the intermittent source power inputs-i.e. photovoltaic and wind that are generating megawatts for grid and non-grid stations that are not aligned with real time demand. You could use the electricity to pump water uphill to reservoirs to operate turbines on the way down, you could store it in massive rare earth battery stations, or you could simply make hydrogen with it. Cheap, efficient, easy to store and to access on demand. If there is a better medium to store energy than hydrogen I am not aware of it. Second, infrastructure is not a problem it’s an opportunity. I’m quite sure there were people in the 1880′s that scoffed at the idea of investing in railcars because there was not enough track. There were people who scoffed at the idea of motorcars because there weren’t enough roads on which to drive them. Tom, think of the jobs that the build out of the hydrogen infrastructure will create. Pipelines, tanks, trucks, pumps, etc. Good jobs, real jobs- There have been several watershed developments in the forward evolution of the American economy. Most people would agree the last 2 are the internet and cellular telephony. The next could be the development of hydrogen as a transportation fuel because it addresses the 2 limiting factors of the expansion of the human footprint on the earth- exhaustion of fossil fuels and degradation of the natural environment.

To your first point, everything you point out is technically feasible, but it’s “expensive” in the sense that you can use the same resources in other ways and get more use out of them. For instance, if you use off peak electricity to generate hydrogen to in turn drive a FCV, you will find that it goes fewer miles than if you use the same amount of electricity to charge an EV of similar size. See this study http://www.metricmind.com/data/bevs_vs_fcvs.pdf which found that to get 60 kWh of energy to the wheels of a BEV you need to start with 79 kWh of electricity from a generator. To get the same 60kWh to the wheels of a FCEV, you need to start with 202 kWh of electricity. On an apples-to-apples basis, EVs are 2.4 to 2.6 times as efficient as FCEVs. They also are lighter and cost less.

In terms of the opportunity of fueling infrastructure being comparable to rail infrastructure in the 1880s, I agree. Many investors lost their shirts when the boom turned to bust. America was better off for the boom, but you can’t say the same for rail investors. http://money.cnn.com/galleries/2007/news/0705/gallery.bubbles/2.html

While having long been part of the H2 sector, I think you correctly called out $QTWW recent rise as having little to do with the reinterest in Hydrogen, but is all about their OEM wins (e.g., with GM) for CNG fuel systems. Such is allowing the company to rise from a near dealth experience from its EV association with Fisker. Soon they will compete their divestiture of their wind biz misadventure as well.

$QTWW is my favorite play on your list, given the bear to bull reversal, with demand for CNG systems growing fast today and the possible (though I agree less likely) H2 future tomorrow.

Redox Power Systems, in conjunction with the University of Maryland Energy Research Center, have made a breathrough in lowering the operating temperatures of SO Fuel Cells (from 950 C to ~ 500 C.) This allows the use of conventional stainless steel parts instead of more expensive alloys. Their cell and reformer technology can use any HYDROcarbon such as natural gas, gasoline, etc. Further, their fuel cell technology produces 2W/cm2 (versus Bloom Energy’s 0.2W/cm2).

Redox Power Systems estimates that their technology will have “one-tenth the cost and one-tenth the size of current commercial fuel cell systems” – See more at: http://mtech.umd.edu/news/press_releases/redox_wachsman_fuel_cells.html#sthash.zYHkFpWQ.dpuf

If Redox Power Systems can create an automative application of their technology, it would solve for the moment, the pure “hydrogen” issue because it can use an already widely available hydrocarbon – gasoline.

I do not work for Redox Power Systems – just an avid follower and investor of Fuel Cells.

You should check the fuel cell company AFC Energy from the UK , their model is as first market to use waste Hydrogen for example the chlorine alkaline industry and many other available long term sources. Secondary there are markets where hydrogen is subsidiesed like south korea and fuel cells will pay off due to this. Lastely AFC has a revolutionary new fuel cell system and electrode which will midterm be able to compete against traditional energy prices. The company is listed within the UK at the AIM yet. Www.afcenergy.com the probably first company with fuel cells to become break even…

Hi Tom, an excellent well thought article. I could agree with the economic focus and believe that Hydrogen is the wave of the future. But I tend to believe it is contrary to a bust as you portray in the end of your article. It is much cleaner, healthier and environmentally friendly than its murkier counterpart which are today’s fossil fuels. In this article you don’t get into technical details regarding hydrogen, but focus on its public perception and its economic potential. Definitely even this trend is looked upon with much attention by the fossil fuel lobby, as it is one of the main sources of hydrogen in use today. There are several other sources of industrial scale hydrogen e.i. employing metals such as aluminum scrap (aluminum cans) and caustic materials – no electricity involved. Similar methods as these were used to provide ample amounts of hydrogen for the German Zeppelins before the Hindenburg debacle. Electricity or hydrolysis would have made the process unviable. It is interesting to see how new methods appear that will make this inevitable transition into the hydrogen age possible. Even today we see Space Age systems such as the Bloom Box already coming of age where instead of producing Oxygen for its Mars trips it reverses the process to produce electricity which can use simply Hydrogen – or its Natural Gas components (hydro-carbons) and Oxygen. Even today Hydrogen is looked upon as a stabilizing factor for the grid’s peak energy production particularly in Germany. I agree once the main players will jump on the bandwagon then we’ll see more action.

The hydrogen bubble returns. The bubble returns because Toyota, Honda, and others are talking about fuel cell cars again. But the bubble will pop once people realize that fuel cell cars are very expensive, hydrogen is not cheap, and there is almost no hydrogen infrastructure.

Why was my post delited about AFC Energy ? It is a alkaline fuel cell company, well it will also run the fuel cells to sell the energy, first targets are chlor alkaline manufacturers which have hydrogen as waste product, a huge market. Partners of AFC are Akzo and Air Products / Dow. Next year a 500 kwh system will .be installed at a dow manufacturing plant. This will be the first FC maker beeing at break even, latest in 2016. All other FC companies burn cash like hell, this is well managed with cash burn only of approx. 3 to 4 million a year, backed by Roman Abramovich and financed for the next 2 years, so probably wil not need further finance and if it has only a sharecount of 220 million. The hydrogen market is there, but you are right, it is to early to use it from generation of other sources, butbto you it on jndustrial sides where hydrogen is given or wasted it makes sence. Also for waste to energy directions where by gasification hydrogen is builded e.g. ! So you are right in extra making hydrogen and as of yet for cars it is still to expensive and will need a few more years. Besides AFC have a complete new fuel cell set up with a completely new electrode concept, the costs will be 1 /10th at least of the traditional fuel cell costs. Dig into them , thanks

What about Hypersolar (HYSR) They have a patent on a product that splits Hydrogen out of water with the energy of the sun, This would be a super low cost way to produce hydrogen. It was created with the help of college students in California.

You got to wonder if this writer was around when we switched to unleaded from leaded. I think it took about 18 months. The hydrogen fuel right now comes from natural gas but electrolysis and even thorium are sources, big sources. I’m sure fossil fuel producers are trying to destroy hydrogen fuel vehicles(which are really electric vehicles) as an option, but they have no control over Japan, Korea, India, and China who have little fossil fuel sources. this is a better fuel and expect it in out of the way homes. Solar can produce hydrogen.

FWIW, there’s another obscure pinker out there, Hydrogen Engine Center, HYEG, making a quality product starting with an internal combustion engine (6 or 8 cylinders) that runs well on hydrogen, methane, syngas. They built 10 sets with generators attached to the engines for a Canadian chlorine manufacturer’s waste hydrogen by-product. They’re selling into the municipal garbage dump methane market. Some aspects of their tech is patented or patent-pending. Real nice WEB site at hydrogenenginecenter.com